RBN Energy
5/10/22
Efforts to limit the effects of greenhouse gas emissions on the climate while meeting growing energy demand rest largely on key partnerships between the oil and gas industry and emerging climate technology companies. The transition to responsibly sourced gas — natural gas that is produced, gathered, processed, transported and distributed utilizing methods that meet the highest environmental standards and practices — does more than just lower emissions as part of that net-zero goal. RSG helps upstream gas businesses and downstream customers demonstrate their commitment to sustainability measures in ways that resonate with investors, regulators and the general public. In today’s RBN blog, we look at the road to a net-zero world and how Project Canary assessments can help ensure that natural gas remains a part of that journey.
Global efforts to address the most significant impacts of climate change, including global warming, have focused on ways to reduce manmade greenhouse gas (GHG) emissions, with the International Energy Agency and other groups calling for a transition to a net-zero world by 2050. Given that we’ll still live in a world that runs to a large degree on hydrocarbons — which produce emissions of carbon dioxide (CO2), methane and other GHGs — what would it mean to live in a net-zero world? On the most basic level, although some GHGs would still be produced, industrial processes, transportation and power generation would need to be as clean and efficient as possible. The GHG emissions would need to be removed from the atmosphere or captured at the source through carbon capture and sequestration (CCS) or carbon capture, use and sequestration (CCUS). (For more on carbon capture, see our Way Down in the Hole series.)
Because it’s not feasible to live in a zero-emissions world — it would be impractical and enormously expensive to eliminate emissions from all industrial activities — a transition to a net-zero future is the likeliest path forward. But concerns about climate change and global warming are not the only things pushing this conversation forward, with the need for climate-resilient development featured in the Intergovernmental Panel on Climate Change’s (IPCC) latest report, “Climate Change 2022: Impacts, Adaptation and Vulnerability.” There’s a new ethics to investing that’s being driven by a combination of several factors — including pressure from regulators, investors and consumers. That means the time to act is now.
On a national level, the Environmental Protection Agency’s (EPA) proposed rule on methane emissions would expand regulations to include methane from older operations. The rule is part of the Biden administration’s efforts to cut U.S. GHG emissions by 50%-52% from 2005 levels by 2030. And although the Build Back Better package died in Congress, parts of it carry generally wide support and could be enacted in the future. That could include a new fee on methane emissions, and for good reason. Methane, the primary constituent in pipeline gas, is a particularly potent GHG, with a Global Warming Potential (GWP) that is 25 to 36 times that of CO2 if normalized to a 100-year timeline, as we explained in our first blog on Project Canary, Free Bird. But methane emissions are neutralized in the atmosphere after a decade or two, meaning their initial GWP is much higher, more like 86 times that of CO2 if normalized to a 20-year timeline. That means that making even modest reductions in unburned methane emissions is a critically important step for companies that want to improve their environmental performance and help speed the transition to a net-zero world.
In addition to potential regulatory changes, pressure has begun building from investors concerned with environmental, social and governance (ESG) issues. Investments in ESG-focused funds neared $650 billion by the end of 2021, up significantly from $542 billion in 2020 and $285 billion in 2019. In response to the rising investor interest, the U.S. Securities and Exchange Commission (SEC) launched a series of efforts to review climate- and ESG-related disclosures to ensure they provide adequate information, including a new Climate and ESG Task Force in the SEC’s Division of Enforcement. More recently, a rule proposed by the SEC in March would require companies to explain in public filings how climate risks might affect their revenues and profitability. Companies would also need to disclose any climate-related goals they have set, how climate risks could impact their financial reports, and if they’re taking action to minimize the effects of climate change in their activities.
At the company level, support for ESG proposals at shareholder meetings rose to 32% in 2021, up from 21% in 2017, according to the Sustainable Investments Institute (SIS). Proposals included a board challenge against ExxonMobil, which could foreshadow future challenges for oil and gas producers. Companies that have embraced ESG issues have also benefited, as the stock prices of companies with highly rated sustainability efforts have generally outperformed the broader market, with stock prices up 22% in 2021 compared to 15% for the broader market, the SIS said.
Downstream gas businesses have their own ESG commitments to meet, driven by similar stakeholder pressures. Finding suppliers that can help them verify these commitments and meet their net-zero targets has become a priority for many gas-distribution utilities. Recent examples of the shift to RSG include:
- Xcel Energy said in November 2021 it would reduce methane and CO2 emissions from its natural gas operations by 25% by 2030 on the way to net-zero emissions by 2050. It plans to do this, in part, by buying natural gas only from companies whose operations are certified as low emitting.
- Southern California Gas said it plans to increase its use of RSG by 2025 as part of its commitment to reach net-zero emissions by 2045.
- Puget Sound Energy said in its “Beyond Net Zero by 2045” report that it plans to transform its natural gas distribution business through RSG and the adoption of new technologies while prioritizing reliability and affordability for its customers.
Taken as a whole, these trends show that simple ESG disclosures are no longer enough. Now, akin to financial data, ESG data is reportable and important. Meaningful sustainability measures are now a requirement to maintain investor support. While these challenges have left some in the industry feeling uncertain about what lies ahead, there is a path that upstream operators can take to beat those headwinds and create a sustainable future.
The solution is to scale up ESG commitments, show demonstrable progress toward goals, and produce RSG using the best methods possible. (As we wrote in Standards, Project Canary’s RSG certifications are a key part of the journey to a net-zero world.) For well operators, the path includes undergoing an environmental assessment and certification process, continuous monitoring and measurements that utilize data and analytics to optimize operations, and steps to quantify emissions intensity. Done correctly, these measures will meet the expectations of today and the enhanced expectations around the corner.
The Project Canary Approach
To harness the benefits of rigorously certified RSG, upstream gas businesses need a trusted partner to take action. Project Canary offers environmental assessments, certification, ESG data and analytics, and emissions intensity quantifications to help upstream gas businesses demonstrate the sustainability of their operations.
- Environmental Assessment: Project Canary evaluates localized air, water, land and community impacts through a comprehensive review of environmental risks associated with a well’s location and evaluation of customer-provided documentation to suggest risk-mitigation efforts. A qualitative and quantitative audit includes site visits, asset-level life-cycle assessments of environmental impacts, and a robust examination of hundreds of data points.
- Facility-Level Certification: The TrustWell® by Project Canary certification program is an independent assessment grounded in oil and gas engineering standards and best practices for the upstream sector. The certification process ensures that operators understand, monitor and mitigate the specialized risks relative to their operations. It also addresses practices throughout the organization by thoroughly reviewing the policy, plan and execution levels. The process includes dynamic and static components, allowing clients to measure and evaluate performance continuously. Continuous monitoring is a significant competitive advantage and a necessary part of real-time methane intensity measurements.
- Data and Analytics: Site-level quantification of emissions through measuring and monitoring allows upstream gas businesses to lead with a traceable value chain. This means an accurate emissions profile created by calculating actual emissions, not unmeasured estimates. The data and accompanying third-party validation from Project Canary create transparency that gives markets and regulators confidence in a company’s emissions reporting — which is critical. Project Canary’s models provide actionable data, allowing field operators to quantify and attribute emissions volumes at the equipment-group level.
Businesses that rely on estimates of methane emissions are going to face increasing scrutiny as the transition to a net-zero world continues to gain pace. One of the greatest challenges facing the gas industry is a perceived lack of trust and transparency, and emissions reporting based on estimates only furthers this narrative. Where feasible, the use of measurements as opposed to estimates will help promote greater authenticity and credibility for the natural gas industry and break through the impasse about whether estimates over- or under-report emissions. Operators with actual emissions profiles that are less than their calculated estimates will benefit from the use of measurement by being better able to highlight their low-emissions operations. And operators with actual emissions profiles that exceed their calculated estimates can also benefit by being able to better identify the sources of their emissions exceedances and then address the same to mitigate potential regulatory risk. But while measurement is beneficial, not all measurement is created equal.
Project Canary’s real-time dashboard. Source: Project Canary
Project Canary’s data is granular and pad level, compared to competitors that only complete infrequent, basin-wide spot checks and are reliant on estimates. The Project Canary process is independent, rigorous, comprehensive and third-party verified, and proves to stakeholders that natural gas is a viable, sustainable energy solution. Project Canary boasts stringent standards for RSG — standards that are likely to stand up to scrutiny from ESG-minded investors and lenders for years to come, unlike the standards of some of its competitors that are less independent, rigorous and comprehensive, and consequently more susceptible to claims of “greenwashing” by those who continue to oppose the natural gas industry. As anyone in business knows, you can’t manage what you can’t measure. So, the Project Canary tools available to monitor emissions and certify the entire RSG production and transportation process are critical.
The Bottom Line
At the heart of Project Canary’s efforts is one basic approach — to encourage improved performance, and for the natural gas industry this means helping companies reduce emissions and enhance operations through the provision of actionable data. Project Canary, a Public Benefit Corporation (sometimes called a “B Corp”), operates to a triple bottom line — profit, people, planet.
- Profit: It’s important to encourage and support purpose-driven leaders to effect positive change in the world without hampering financial performance. With concerns about climate change and ESG priorities, sustainability-minded innovation is here to stay.
- People: This is a business’s societal impact. Everyone — communities, customers and investors — is important.
- Planet: Large corporations have contributed a staggering amount of pollution to the environment, which has been a key driver of manmade climate change. While businesses have historically been the largest emitters, they also hold the keys to driving positive change. Many business leaders are now recognizing their responsibility to do so.
The Energy Information Administration (EIA) said in late 2021 that it expects global annual energy consumption to increase by nearly half by 2050 under its base case, with natural gas consumption growing by 45% during the same period, which means that natural gas is going to play a significant role in our energy future for decades to come. With that in mind, efforts by Project Canary to certify RSG and quickly detect and eliminate methane emissions through continuous monitoring are important first steps on the path to a net-zero world.